Shareholder Services Association Webinar: Lessons Learned from the 2016 Annual Meeting Season- Part I: Proxy

Transcription

1 Shareholder Services Association Webinar: Lessons Learned from the 2016 Annual Meeting Season- Part I: Proxy Welcome and Introduction: Abby Cowart, Executive Director, SSA Moderator: Paul Gallagher Director, Corporate Client Services Broadridge Financial Solutions, Inc. Presenters: Ron Schneider Director, Corporate Governance Services Donnelley Financial Solutions Michael Verrechia Senior Managing Director Morrow Sodali

2 DISCLAIMER The information provided in this webinar represents the current understanding of the presenters and the Shareholder Services Association. It is subject to change. In no way should this information be construed or relied upon as legal or operational advice. You should consult with your own legal counsel, compliance officer and/or other subject matter experts. 2

3 2016 Proxy Season Review Michael Verrechia Senior Managing Director

4 Information derived from Institutional Shareholder Services voting analytics database. Shareholder Proposals Shareholder proposals submitted to the S&P 500 in 2016 was slightly down vs. 2015, but still higher than 2014 and voted on in 2016: 39 passed while 371 failed 443 voted on in 2015: 63 passed while 380 failed

5 Proxy Access S&P 500 PROXY ACCESS The industry has settled in on the top line numbers and 3%/3-years/20%/20 has been widely accepted Currently over 40% of S&P 500 companies have adopted proxy access Year 2 of proxy access saw roughly the same number of proposals go to a vote 60% 40% 2016 PROXY ACCESS PROPOSALS Shareholder, 76 Through mid-september there were 97 proxy access proposals that went to a vote in shareholder sponsored 16 management sponsored 5 instances where a management and shareholder proposal appeared on the same ballot Both, 5 Management, 16

6 2016 Proposals that Went to a Vote* Shareholder Proposals # of Proposals Average Vote Company had a 3%/3year/20% proxy access bylaw in place % Company had a 5%/3year/20% proxy access bylaw in place % No company-adopted proxy access bylaw in place % Both Shareholder and Management Proposal on the Ballot # of Proposals Average Vote There was a company sponsored 3%/3year/20% bylaw % There was a company sponsored 5%/3year/20% bylaw % Management Proposals # of Proposals Average Vote Company sponsored 3%/3year/20% proxy access bylaw % * Votes on proposals as a % of the For and Against Vote

7 Shareholder Activism/Proxy Contests The aggressive shareholder activist environment has not gone away in 2016 Activist funds have grown nearly sixfold since 2008, from $32 billion to $173 billion According to SharkRepellent, the number of fights has been fairly steady over the last 3 years 92 in 2014; 104 in 2015, and 99 in 2016 Types of fights Top-4 in 2016 (according to Activist Insight) Board Related 46 Other Governance 22 M&A 13 Balance Sheet 10 Size of targets Large cap (>$10B) 22% Mid cap ($2B - $10B) 14% Small cap ($250M to $2B) 26% Micro-cap ($50M to $250M) 20% Nano cap (less than $50M) 18% Not many high profile fights in 2016 (threatened but settled at Yahoo and United Continental) More prevalent were fights at small and micro cap companies (RiceBran Technologies - $15M market cap) Settlement has been declining over the last 3 years; 51% in 2014, 44% in 2015, and 37% in 2016 M&A 14% PROXY CONTESTS IN 2016 BY TYPE Other Governance 24% Balance Sheet 11% Board Related 51%

8 Say on Pay Voting generally in line with 2015 averages Proposal pass rate over 98% Average FOR vote over 91% Don t take comfort in the high success rate A high FOR vote does not necessarily translate to the same level of success in the next year Even a slight decrease in the vote year to year should be closely analyzed Who voted against? Rationale? How has the shareholder profile changed?

9 Shareholder Engagement Shareholder engagement has become a year round process No longer a proxy season activity The last few years saw encouragement from major institutions to engage Who should make the outreach? Lead director Comp Committee Member General Counsel reporting back to the board Not just institutional shareholder engagement Many issuers with a large retail component continue to actively pursue innovative and cost-effective retail engagement

10 Trends in Proxy Statement Design Ronald M. Schneider Director, Corporate Governance Services Donnelley Financial Solutions

11 Regulatory Risk vs. Shareholder / Governance Risk Meeting regulatory requirements, while necessary, is not sufficient for addressing investor concerns As investors increase their focus on corporate governance and executive compensation practices, many companies are transforming their proxies from SEC form 14A disclosure documents, to more visually inviting and informative communications pieces that tell the company s best governance and compensation stories This innovation did not develop in a vacuum, but rather was the result of earlier robust dialogue with investors Most companies don t seek to be the vanguard of new disclosure practices. Most also don t want to be perceived as laggards so they often emulate peers One size does not fit all. Proxy innovations should align with each company s unique culture and support its business, corporate governance and proxy solicitation goals Companies increasingly utilize cross-functional internal teams including Legal / Corporate Secretary, Finance / Investor Relations, HR / Executive Compensation, Corporate Communications (with board review of major changes)

12 Audiences for Proxy Statements Proxy statements have multiple audiences; each reads proxies through different filters and may use the information for different purposes. These audiences include: The SEC and other regulators to confirm compliance with applicable disclosure requirements The media to identify trends and discover holy cow CEO pay figures Employees to learn how much their company s leaders are paid Sue on Pay law firms seeking to hold shareholder meetings hostage Proxy advisers to apply their policies, run their quantitative models and make their voting recommendations Investors to learn more about their portfolio companies and to determine how they will vote on the various proposals. These include institutional investors with different investing styles, risk profiles and investment time horizons, as well as retail investors and employee / owners NOTE: Institutional investors report using the proxy more as a reference than a reading document. Hence length may not be a problem provided there is easy navigation to key content.

13 Drivers of Proxy Evolution Concerns that increased proxy length is contributing to declining readership Concerns about the influence and impact of proxy advisors Desire to make company disclosures the primary information source for voters Say on Pay Need to tell your best compensation story, and explain how pay supports company strategy Activism Need to tell your best board and corporate governance story Poor vote results in one year reacting to the results Investor feedback on the company s disclosures What peer companies are doing Requests by governance teams and voters at institutional investors for proxies to include some business context early in the document explaining the environment the company operates in, and which helps them to make more thoughtful, company-specific voting decisions Anticipating and responding to proposed new disclosure requirements (e.g. pay vs. performance disclosure, clawbacks for restatements, hedging policies, CEO/median employee pay ratio)

14 Enhanced Online Proxy Statements

15 Questions & Comments? Thank you for participating! 15